DOL investment advice lawsuit could be decided soon

New regulations are on the way from the Labor Department. — The Department of Labor is fighting a pair of lawsuits against its investment advice rule.

By John Hilton

Very little news has been generated from a pair of lawsuits were filed in February against the Department of Labor's investment advice regulation.

That seems likely to change soon.

The Federation of Americans for Consumer Choice (FACC), joined by a number of independent insurance agents and agencies, sued the Labor Department almost as soon as the investment advice rule took effect on Feb. 1.

FACC sued in a Dallas court, which is within the Fifth Circuit, where the appellate court previously struck down the DOL’s prior fiduciary rule.

There it has languished ever since. But the pace is about to pick up, with the DOL's final brief due Friday and oral arguments expected in January, said Kim O'Brien, CEO of FACC.

A decision could come early in 2023, she added.

Published by the Trump administration to replace the fiduciary rule, the investment advice rule broadens the agency interpretation of who is considered a fiduciary. The FACC lawsuit contends the new rules are directly contrary to the Fifth Circuit ruling.

The lawsuit asserts the rule “carries forward the core problem the Fifth Circuit identified in vacating the Fiduciary Rule the first time,” adding that “pouring the same old wine into a new bottle does not change the result.”

"We continue to believe strongly in our case and that the DOL preamble is incompatible with the Fifth Circuit Decision in the Chamber case," O'Brien said this week. "Thus we remain hopeful that DOL will ultimately be forced by courts to define fiduciary in a manner compliant with ERISA, which could mean these fiduciary issues have a long way to go."

In 2018, the Fifth Circuit Court of Appeals tossed out the fiduciary rule, ruling that the DOL exceeded its authority by creating a new regulatory scheme for the retirement plan space.

FACC, a trade group representing independent life insurance agents and agencies selling annuities and other insurance products, contends that the latest DOL rule will harm average consumers even though promoted as increasing consumer protection.

The investment advice rule has two main parts: a new prohibited transaction exemption allowing advisors to provide conflicted advice for commissions; and a reinstatement of the "five-part test" from 1975 to determine what constitutes investment advice.

Meanwhile, a third rule is in the works as the Biden DOL plans a new definition of fiduciary. That rule could be released any day now.

Second lawsuit remains quiet

The American Securities Association followed FACC with its own lawsuit filed in U.S. District Court for the Middle District of Florida. It claims the DOL overstepped its bounds with guidance issued in April 2021.

The Florida court has not progressed with the same alacrity as its Dallas counterpart. The last recorded court activity on the ASA lawsuit came on Aug. 26. Reached today, ASA officials declined comment on its lawsuit.

The DOL guidance indicates that first-time advice to transfer retirement assets out of a federally regulated plan can constitute fiduciary advice, which the rule subjects to a strict standard of care. Issued as a series of Frequently Asked Questions, the guidance essentially created new rules, the ASA claimed in the lawsuit.

The ASA claimed the guidance essentially “rewrote” the regulation, in the process, imposing burdensome documentation and investigation requirements on their members.

"The [Administrative Procedures Act] prohibits agencies from regulating in this manner," the lawsuit reads. "If the Department wanted to change its rules, it needed to do so through the required notice-and-comment process—not through guidance documents."

InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at john.hilton@innfeedback.com. Follow him on Twitter @INNJohnH.